Quote:
Originally Posted by floridasandy
i don't think that most americans are stupid at all but i am not sure that the 80% went into savings since we only went up to a 3% savings rate. i think americans are trying to pay down their debt as fast as possible. no matter what we do we are headed for some rough economic times and these stimulus plans so far are just increasing the government debt load as the people are trying to get their personal debt load down. as far as people putting their money in their houses that is not entirely true, although i acknowledge that most american wealth is in their homes and not the stock market. the problem is that recently people have been on a current pattern of not putting money down on houses (or very little money down) and then pulling this imaginary money out of their houses to continue their spending patterns.
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Hi floridasandy,
People were buying homes as a form of savings. Most Americans are not as stupid as advertised. They are not ingenious or particularly educated in many cases but they are not what they have been portrayed to be. Lets look at investment options until 2006.
1. savings accounts: Low returns, stable, taxable.
2. Stocks: High returns, volatile , taxable.
3. House: High returns, stable, not taxable.
For many people the only way to avoid taxes was to buy a house. The home mortgage interest deduction, the one time capital gain exemption , Fanni and Fredi cache for a steady buying pool was all manufactured by our government. It makes a house from a place to live into an "investment".
One of the big reasons why people scramble for investments is because our currency is typically inflated. If it was not then again people would buy houses to live, not to dodge inflation. This is again a policy of our government.
So my question is why did this policy not work when giving it to Americans who did what everyone says they should do? The real way out of it is for Americans to shed off this illicitly commercial created debt. Taking government debt and rotating it in to pay down commercial debt is exactly what they don't want because it is in the interest of the individual.
The one thing Americans do not know is the big secrete I have been trying to get out. Our currency is debt created by promissory agreements backed by collateral. Its a fancy way of saying lets turn this gold ring into money. I promise the ring to the bank and they print up some paper and I pass it around. That is what is meant by "monetize". Its a banks seal of approval to pass something around as money. What does this do? It drives up the "value" of these durable assets which then may be pledged for even more money. As this continues, other people notice they cannot keep up until they acquire this hedge against ever rising prices which drive up the value even more. Then the trend ends.
Under ordinary circumstances the banks can't lose since they have the collateral. Even though they print the money from nothing, they still need to cover the liability, otherwise they would monetize dirt. Only the Fed can monetize dirt and pond scum. With housing dropping, their collateral is worthless. That means plan b for the big banks, the Fed.